Legislative Update: Education, Water Rights, Taxes and more...

Thank you to the 463 REALTORS® who joined us on January 19 in Olympia for our 2017 Legislative Hill Day. REALTORS® have again put forward a legislative agenda that protects our industry, our clients, and our communities.

Here is the status of our key bills for the 2017 Legislature, and also a summary of the initial proposals to address the Supreme Court’s McCleary education funding decision.

INDEPENDENT CONTRACTORS

While REALTORS® are considered independent contractors under federal tax law and some state statutes, there is no definition within the license law regarding independent contractor status. With the uncertainty seen in other industries due to employment law litigation, these bills preserve our industry’s current business model. Both bills have passed unanimously from their policy committees. SB 5125 passed 48-1 off of the Senate floor, and is waiting for a floor vote in the House.

THE GROWTH MANAGEMENT ACT

SB 5254 (Sen. Fain, 47th District)

SB 5254 is a comprehensive land use, housing, and homelessness funding bill that REALTORS® initiated and that is supported by all other major development interests.

The bill reforms the Growth Management Act’s Buildable Lands Report process so that local land use plans cannot rely on unrealistic development assumptions to meet population growth targets, and must include consideration of the availability of infrastructure and loss of buildable land from environmental regulations. The bill also preserves the ability of cities to allow additional growth inside urban growth areas, without having such growth plans vetoed by regional planning bodies. SB 5254 also includes a number of provisions to assist in providing low income housing and funding for the homeless. These provisions include an expansion of existing tax incentives for low income housing, temporary use of a portion of local Real Estate Excise Tax revenue for homelessness, and a 10-year extension in the current document recording surcharge that is the primary source of funding for local homelessness programs. SB 5254 was passed by the Senate Local Government Committee.

EDUCATION

SB 5607

A variety of education funding and reform proposals have been introduced to address the State Supreme Court’s McCleary education funding decision. REALTORS® support SB 5607, a proposal from the Majority Coalition Caucus that implements the long-awaited “property tax swap.” A property tax swap, previously proposed by a variety of bipartisan legislators, creates a uniform property tax levy rate to fund basic education costs. This concept addresses the core issue in the McCleary decision that high property value school districts have a much lower than average school levy rate, while low property value districts have much higher rates. This proposal will result in property tax increases in some high property value areas, and reductions in other areas.

While the local tax increases are a concern to REALTORS®, especially as they would occur in areas already struggling with affordability, the reality is that the state property tax is our state’s fundamental source of education funding—the State Constitution calls property tax the “common school levy.” And, property tax is a stable source of revenue, unlike some of the new taxes or tax increases proposed by some legislators and Governor Inslee. Volatile and unpredictable new taxes like capital gains or carbon tax may not satisfy the Supreme Court’s requirement for a stable revenue source for basic education.

For example, other proposed McCleary funding sources include a new state capital gains income tax of 7.9% which would be in addition to the 1.78% real estate excise tax imposed on most real estate transfers. This new 7.9% capital gains income tax would not apply to single family residential properties, but would apply to duplexes, multi-family, and all commercial real estate. These types of real estate are a common source of retirement income for many Washington residents and would be taxed at 7.9% and yet the proposal does not apply to public or private pensions or retirement accounts.

B & O Tax

SB 5825

Another critical tax issue for REALTORS® is a proposal by Governor Inslee to increase the business and occupation tax on real estate and service businesses by 66% from 1.5% to 2.5%. The service rate B&O tax is already the highest regular B&O tax rate, and applies not to a business’s profit, but to its gross income. REALTORS® will strongly oppose B&O tax increase proposals that single out one industry group like service businesses.

A new compromise proposal have been introduced in SB 5825 (Sen. Mullet, 5th District), which rather than implementing a complete property tax swap, would lock in current local levy rates, but then double state funding for “levy equalization,” a current state program that assists low property value parts of the state. While this proposal had a somewhat bumpy hearing, many of its concepts have merit and will be closely reviewed by the Legislature.

WATER RIGHTS

SB 5239

In addition, REALTORS® continue to support legislation that will correct the Supreme Court’s Hirst water rights decision. In this decision, the Court ruled that the Growth Management Act requires cities and counties to independently review new domestic wells for impacts to instream flows rather, rather than being able to rely on the Department of Ecology’s rules. This is already resulting in development moratoria and building permit denials in many parts of the state. Simply put, this decision is wrong and must be corrected by the Legislature in 2017. The leading bill to solve this problem is SB 5239 (Sen. Warnick, 13th District) Washington REALTORS® is closely monitoring this bill as it passes from the Senate to the House.

April 23rd is the last scheduled day of the 2017 Legislative Session, though at this point it is unclear whether an additional 30 day session may be required.

About the Author

Nathan Gorton has worked as the Government Affairs Director at Washington REALTORS® for seven years. He came to Washington REALTORS® from the Snohomish County-Camano Association of REALTORS® where he worked for seven years as the Local Government Affairs Director and then as Association Executive. Prior to his work in Snohomish, Nathan worked on and managed several political campaigns ranging from city ballot issues to Congressional races. Nathan served as the 2015 Chair for the National Association of REALTORS® Government Affairs Directors. Nathan is a proud graduate of the University of Washington. He lives in Olympia with his wife and adorable daughter.